Image: People’s Bank of China, iStock.com/xcarrot_007
Stocks soared last week after several major Central Banks stepped in and announced more easy money measures to help stimulate markets. The U.S. Federal Reserve sent a clear message that it is ready to cut rates, China injected $72 billion to help spur their economy, The European Central Bank (ECB), Australia’s Central Bank and a few others also came out and supported more easy money measures. For now, the most important force on the market is easy money from global central banks. Eventually, that will end but until it does, it needs to be respected. When easy money is in play, everything else takes a backseat. That was the single most important lesson in the aftermath of the 2008 financial crisis. For now, easy money trumps everything else.
Stocks fell on Monday after a slew of tech stocks dragged the market lower and the Nasdaq fell into correction territory. Over the weekend, the Justice Department went after Alphabet (Google’s parent company) and then on Monday it went after Apple. The Justice Department said it has jurisdiction over a potential antitrust probe against Apple. Shares of other tech giants fell in sympathy. Separately, Fed’s Bullard said a rate cut may be ‘warranted soon.’ That is the Fed put in action. Stocks soared on Tuesday after the Fed signaled it will help the economy, if needed. Stocks soared after Fed Chairman Jerome Powell signaled the central bank would be open to easing monetary policy to save the economy, if needed. The move came one day after the Nasdaq officially fell into correction territory. This is also known as the Fed Put (the idea that the Fed would step in an announce more easy money if stocks fall). Stocks continued to race higher on Wednesday after a private jobs number came in weaker than expected. The weaker than expected reading prompted many to hope that the Fed will cut rates, if needed. After the close, the latest talks between Mexico and the U.S. ended without a deal.
Thursday & Friday Action:
Stock were quiet on Thursday as the market paused to digest the recent and robust rally. The ECB hinted more easy money is around, if needed. Separately, Trump said tariffs on China could be raised by another $300 billion, if necessary. In other news, Central Banks around the world united and said more easy money is ready, if needed. On Friday, the Labor Department said U.S. employers only added 75,000 new jobs in May, missing estimates for a gain of 180,000. In other news, China’s PBOC injected $72 billion to rollover medium term funds which helped boost the market.
Market Outlook: Easy Money Is Back
Once again, global central banks showed up and juiced markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and the Federal Reserve reversed its stance and moved back into the easy money camp. Now, other central banks have followed suit and easy money is back to being front and center for the market. As always, keep your losses small and never argue with the tape.